Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Nintendo Co. aced earnings last quarter thanks to a solid start for its Switch gaming machine. History doesn't favor the Japanese company from this point on, however.

Revenue for the June quarter came in at 154.1 billion yen ($1.4 billion), ahead of the 139 billion yen average of estimates, Bloomberg News reported. Significantly, operating profit beat the average prediction by 53 percent.

Despite that performance, Nintendo stuck with its previous guidance for sales of 10 million units of Switch hardware for the financial year that ends in March 2018, and 35 million of the software. With supply being the main bottleneck for growth, analysts and investors have been keeping an eye out for an upgrade in that outlook. Nintendo didn't deliver.

Sales of 2.7 million units in March, when the Switch went on sale, were followed by 1.97 million for the entire June quarter. We expected the honeymoon to end quickly, but that massive drop-off means that to hit its full-year target, Nintendo needs to boost the sales rate by 35 percent for each of the nine months left this fiscal year.

Tall Order
Nintendo needs to boost its monthly sales rate to hit full-year guidance for Switch shipments
Source: Nintendo, Bloomberg Gadfly

"Ah, but they have Christmas," you say. The Switch would indeed make a perfect stocking stuffer, assuming would-be recipients haven't already shelled out $300 for a unit by the time Santa visits.

But Christmas may not be the sales driver many expect. Back in 2011, after the 3DS machine was released, the December quarter did provide an extraordinary 3.5-fold increase in unit sales from the prior three-month period. It wasn't good little girls and boys that drove the boost, however, but a 33 percent price cut, as the company acknowledged at the time:

During the fiscal year ended March 31, 2012, for the "Nintendo 3DS," in order to get it back on track to its originally anticipated sales pace as the successor of the "Nintendo DS," Nintendo made a significant price cut.

Even last year, Nintendo realized it couldn't bet on the holiday period to boost sales, and in February 2016 had to cut its 3DS forecast to 6.6 million units from 7.6 million for the fiscal year ended that March.

Power Up
Nintendo relied on price cuts and new models, as well as holiday demand, to boost 3DS shipments
Source: Nintendo, Bloomberg Gadfly

It's fair to say that the Switch isn't quite the disappointment of its older siblings, but the lesson here is that the holiday period alone isn't enough to boost demand. That's more true now than in the past, because there are dozens of items competing for Santa's attention, including, soon, a new iPhone from Apple Inc.

So Nintendo was wise to disappoint by refusing to raise its outlook. Absent price cuts, an upgraded device or heavy marketing, the forecast it has now could be a stretch.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net